Had I not been the object of the attack, I'd probably have
written a post hypothesizing that if Bank of America was this freaked out by
an article that just regurgitated some bearish arguments made by
others, the bank really must be in trouble.

I was the object of the attack, though, so this didn't
seem appropriate.

Other Bank of America observers quickly came to
the same conclusion, though. Including Rich Eckert of Second
Derivative Research, who sent the following note to his clients:

There was an article in Business Insider from Henry Blodget summarizing the “bear case”
against Bank
of America. I do not believe he himself was
taking a position, merely gathering and encapsulating bearish
sentiments. BAC issued the following response:

"Blodget is making exaggerated and unwarranted claims which is
what the Securities and Exchange Commission stated publicly when
he was permanently banned from the securities industry in 2003.
The sovereign exposure is off by a factor of 10. The commercial
real estate figures are off by a factor of four. The mortgage
analysis was provided by a hedge fund that has acknowledged it
will benefit if our stock price declines. The recommendations on
goodwill accounting would be prohibited by generally acceptable
accounting practices. Traditional bank valuation relies upon
tangible book value per share, which excludes by definition 100
percent of goodwill and other intangibles. As of June 30, our
tangible book value per share was $12.65. "

Although I concede that BAC had to respond given the free fall in
its stock, the personal nature of the response and the bank’s
defensive posture regarding its individual exposures only
ratifies my belief that something is seriously amiss and that
there is at least some merit to the bears’ theses. I think
it is very telling that, when addressing sovereign exposure, BAC
only spoke to its direct exposure to sovereign
governments. It deliberately omitted any response
to the argument that it has probably written trillions of dollars
(notional principal) of CDS against that debt and the banks
holding that debt. Or that where it has matched its swap
book, it has bought protection from those very same European
banks or the technically insolvent German Landesbanks (their
version of “thrifts”).

That omission is more revealing than any of the statistics cited
by Blodget or BAC. As is the failure of BAC to simply set
the record straight with some kind of factual release, something
to the effect of: “Our mortgage litigation exposure is $xx
billion, our 2nd lien loan exposure is $xx billion,
our sovereign debt exposure is $xx billion, our commercial real
estate exposure is $xx billion, etc.” The personal attack
on Blodget and the sensational nature of its denials (e.g., “by a
factor of”) almost screams “mea culpa.”

To paraphrase Harrison Ford’s character, Deckard, in Blade
Runner, “If I was short before, I’m twice as short now!”

For what it's worth, Rich is correct: I wasn't taking a position
on Bank of America-the-company or stock—I
was just explaining why the stock was tanking. As I mentioned
earlier, I'm also a Bank of America shareholder, so I'd actually
rather it were going up.

In happier news, Bank of America only fell 2% today. That's an
improvement!